JDA Does Not Constitute Transfer u/s. 2(47): ITAT Deletes Capital Gains Addition on Security Deposit [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chandigarh, ruled that execution of a Joint Development Agreement (JDA) does not amount to a transfer under Section 2(47) of the Income Tax Act, 1961, thereby deleting the capital gains addition made against the assessee.

The Appellant, Devi Dayal, is a resident of Kaithal, Haryana, who filed his return of income for the Assessment Year (AY) 2008-09 declaring ₹2,70,600. He was co-owner of agricultural land in Yamuna Nagar, Haryana, holding a one-sixth share. The land was subject to multiple collaboration arrangements, including one with M/s Rising Son Developers, another with M/s Omaxe Ltd., and finally with M/s Uppal Housing Ltd. on August 29, 2007, which was later assigned to M/s Uppal Buildtech Pvt. Ltd.

The Assessing Officer (AO) reopened the assessment and treated the arrangement as a transfer of capital asset, leading to an order of addition of capital gains under Section 45(1).

In the appeal against said order, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, which brought the matter before the ITAT.

The Appellant represented by Parikshit Aggarwal and Shruti Khandelwal, argued that the collaboration agreement was not a transfer of land but only a development arrangement. It was contended that the ₹5 crore received from the developer was a refundable security deposit, not consideration.

It was submitted that the landowners had formed an Association of Persons (AOP), converted the land into stock-in-trade, and offered profits from sale of developed area in subsequent years. Therefore, the assessee would not get any capital gain upon the sale of this stock-in-trade.

It was further submitted that the profit of sale of developed area has already been offered for taxation by the assessee in the subsequent years.

The Revenue represented by Manav Bansal, argued that possession was handed over to the developer under the JDA, thereby fulfilling the conditions of Section 2(47)(iv) and Section 2(47)(vi) read with Section 53A of the Transfer of Property Act, 1882. It was contended that the transfer was deemed to have occurred, and the AO was correct in taxing capital gains in the relevant assessment year.

The Bench consisting of Vice President, Rajpal Yadav and Accountant Member, Krinwant Sahay, analyzed the clauses of the JDA and noted that the amount of ₹5 crore was explicitly described as a refundable security deposit. The tribunal noted that the essence of a transfer under Section 2(47) of the Income Tax Act, 1961 lies in the creation of enforceable rights that permit the transferee to enjoy ownership-like benefits. The bench observed that although possession was nominally referred to in the JDA, it was only for the limited purpose of enabling development, and did not amount to conveyance of ownership.

The Tribunal further emphasized that capital gains can be taxed only when real income accrues or arises, and in this case, no such accrual occurred in the assessment year 2008-09 because the appellant had merely received a refundable security deposit and retained ownership of the land.

Accordingly, the ITAT deleted the addition.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates